Commingled Funds and Tracing Flashcards
Commingled funds
Commingling of funds does not necessarily transform or transmute the property from SP to CP if the spouse advocating the SP can trace the SP portion to their SP.
Burden of Proof for Commingled Funds
The burden of proof is on the spouse claiming SP, not CP, to show that each asset was acquired with SP funds. Tracing methods include:
a. Exhaustion method
b. Direct tracing method
Direct Tracing Method
Requires showing a direct link from the SP funds to the purchase such that there were sufficient SP funds in the account at the time of the purchase and that the intent was to use SP funds to make the purchase.
Exhaustion Method
Requires showing that at the time property was purchased, all community funds in the commingled account had been exhausted to community expenses and thus only SP funds were available to purchase the property.
Unable to Trace SP
If it is impossible to trace the source of the property fund in a commingled account to SP, the account will be considered CP.
Joint Title
Tracing cannot be used to overcome the presumption where title to joint property was taken jointly, except that tracing can be used to overcome the presumption for jointly titled bank accounts since bank accounts are governed by the probate code.
Family expense presumption
It is presumed that expenditures for family expenses (food, housing, clothing, recreation, etc.) were made with community funds (to the extent that they were available), even though separate funds were available.
Pereira Test
P- persons skills and effort
Use where the spouse’s time, skill and effort are major factors in growth of the business. Look for instances where the spouse contributed creative ideas or develops new techniques, and/or worked long hours and only drew modest salary
Pereira Formula
P pay interest on separate property; the rest is community property
Pay interest at legal rate (10% annum) on value of business at the time of marriage
Van Camp
Think Valuable Company
Use where capital investment was the major factor in the businesses growth, and the spouses skills were less of a factor. Look for instances where spouse was paid substantial salary and large bonuses (meaning the community was already compensated)
Van Camp Formula
Value Community labor; the rest is SP;
Start with the value of the spouse’s services at market rates (how much would have executives in similar positions compensated on market MINUS family expenses paid from community funds = community component) the rest is SP.
Value of community labor-family expenses = CP
Pension Benefit Calculation
Employee retirement benefits accumulated during marriage, whether or not vested at the time of divorce are community property as a form of deferred compensation;
CP = # yrs service while married/Total # yrs to retirement
Options to spouse for retirement benefits
- “If and When” received- spouse gets her share if and when received
- “Cash her out” - by awarding other assets of equal value
H’s election not to retire cannot defeat the wife’s present right to payment.
Qualified Domestic Relations Order (QRDO)
If a nonparticipant spouse in a qualified pension plan divorces a participant spouse, her CP interest is recognized; under federal law and she can receive payments from the plan.
No interest if she predeceases spouse.
Disability pay
Disability benefits and worker’s compensation are treated as wage replacement. Thus, disability retirement and workers’ compensation benefits are classified according to when received not earned; therefore they can be husband’s SP.
However, H cannot elect too defeat former spouses’ community interest.
